Conventional and Strategic Performance Measurement System

The Jasmin enterprise is a leading builder of luxury houses. It operates its business in a building in downtown Auckland City. The building was built in 1952 at a cost of $650,000 and is fully depreciated so that it is shown on the company's balance sheet at a nominal value of $1. The land on which the building was built in 1952 was purchased in 1948 for $120,000. The company does not charge depreciation/appreciation on the value of the land for balance sheet purposes. The franchise, which is the company's only other major investment, cost $250,000 in 1952. The franchise cost has now been fully amortized. The current assessed value of the building is $200,000. The assessed value of the land, which is located in a prime urban area, is $20,000,000 and reflects the net value of the property if the current building is demolished and replaced with an office and shopping complex. The company adopts traditional performance evaluation system.

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Question 2.1

Assume that Jasmin earns an income of $3,000,000 per year. What is the return on investment (ROI) using (i) average net book value and (ii) average historical cost as the measures of investment? Show your calculations.